Perhaps the most frustrating penny stock to own this year is GNUS. After seeing a phenomenal run propel the stock from $.05 to $11.73 and back down to $1, most shareholders are now sitting on huge losses. Many are now questioning what to do.
- Have they become bagholders?
- Should they sell and take the loss?
- Should they buy more?
- Is there still hope?
- Has GNUS finally bottomed?
- Is GNUS stock manipulated?
In this article, we take a look at all these questions and get to the bottom of is GNUS still a good buy?
First up, here’s a little background info for those not familiar with GNUS. Genius Brands International, Inc. is a leading global kids media company developing, producing, marketing, and licensing branded children’s entertainment properties and consumer products for media and retail distribution.
The Company’s portfolio includes the upcoming Stan Lee’s Superhero Kindergarten, starring Arnold Schwarzenegger and in partnership with Alibaba; Rainbow Rangers for Nick Jr.; Llama Llama, starring Jennifer Garner, for Netflix; award-winning toddler brand Baby Genius; adventure comedy STEM series Thomas Edison’s Secret Lab; and entrepreneurship series Warren Buffett’s Secret Millionaires Club.
Through licensing agreements with leading partners, characters from Genius Brands’ IP also appear on a wide range of consumer products for the worldwide retail marketplace. The Company’s new Kartoon Channel! is available in over 100 million U.S. television households via a broad range of distribution platforms, including Comcast, Cox, DISH, Amazon Prime, Sling TV, Apple TV, Roku, Amazon Fire, and more.
Available in over 100M U.S. television households and over 200M mobile devices, Kartoon Channel!, which is also now available on iOS, offers access to a wide variety of Genius Brands original and acquired family-friendly content, with more added daily, including Babar, Angry Birds, Stan Lee’s Mighty7, Thomas Edison’s Secret Lab, Baby Einstein, Baby Genius, Llama Llama shorts, Warren Buffett’s Secret Millionaires Club, and more.
Additionally, Genius Brands has added more family-friendly gaming content, including Minecraft’s Journey to the End and Fairy Horse Quest, Octodad, PixArk, and coming soon from Tankee, Big B Roblox Challenge. Genius Brands will also premiere on Kartoon Channel! in Q1 2021 the upcoming comedy-adventure series, Stan Lee’s Superhero Kindergarten, currently in pre-production and starring Arnold Schwarzenegger.
In addition to the new iOS mobile app, Kartoon Channel! has just launched its new APP on Apple TV OS, Roku, and has gone live on www.kartoonchannel.com. You can also find Kartoon Channel! on Xumo, Comcast, Cox, Dish, and Sling. The iOS app will be the model for additional platforms coming soon.
When one reads everything that GNUS has going on, it’s hard to believe that the stock is trading just above $1. There are a few reasons for this.
- There has been dilution. On August 27, 2020, stockholders voted to increase the authorized number of shares of the Company’s common stock from 233,333,334 to 400,000,000.
- Due to the share price drop, ambulance-chasing lawyers are after the company. On August 18, 2020, the Company and its Chief Executive Officer Andy Heyward were named as defendants in a putative class action lawsuit filed in the U.S. District Court for the Central District of California and styled Salvador Verdin v. Genius Brands International, Inc. and Andy Heyward, Case No. 2:20-cv-07457-DDP-PJW.
- GNUS has seen its stock manipulated by the shorts, most notably Citron and Hindenburg Research. In July, nearly half of the float had been shorted. Now, just 12% of the float is short. Shorts have been buying and selling GNUS, booking massive profits in the process.
No conversation about GNUS stock can be complete without discussing dilution. This is what the bears keep harping about like a broken record. The fact is no company would exist today without dilution – Disney, Netflix, Apple, Amazon, etc. Companies issue stock to raise money. Genius Brands now has $55 million in cash on its balance sheet and NO debt. CEO Andy Heyward addressed dilution in this press release:
Normally, people associate the issuance of shares with dilution, however when the dilution is accretive, the benefit to the company is exceeded by the acquisition of the asset and is greater than the dilutive effect. That is the primary purpose of having these new shares available. I speak not only as your Chairman and CEO but as one of the largest shareholders in the company. My interests are fully aligned with those of our shareholders of common stock.
He further added:
One only needs to look at The Walt Disney Company’s playbook, to see the value changing transformation of important assets….all acquired through issuance of new stock – Pixar, LucasFilms/StarWars, and Marvel Entertainment.
Is GNUS Still A Good Buy?
We believe GNUS is still a good buy. Here are the reasons why.
- Arnold Schwarzenegger is now a significant investor in Genius Brands stock after electing to receive warrants to purchase shares of the Company’s common stock as an advance against his profit participation in the new animated children’s series, Stan Lee’s Superhero Kindergarten.
- It’s important for Genius Brands’ shareholders to realize the effect Schwarzenegger could have on the company. If anyone doubts star power, look at what Oprah Winfrey has been able to do for Weight Watchers’ parent WW International. Arnold’s warrants are at $1.39 per share. He’s in GNUS stock to make money. He could have taken cash but chose GNUS stock instead. Obviously, Arnold sees huge potential in GNUS stock over the long run.
- Walmart now has the Rainbow Rangers’ toy line from Mattel, along with hundreds of other product SKUs coming to retail over the next 12 months. The toys feature characters—Rosie Redd, Mandarin Orange, Anna Banana, Pepper Mintz, Bonnie Blueberry, Indigo Allfruit, Lavender LaViolette, and Floof—from the popular Rainbow Rangers series, currently airing on Nick Jr. in the U.S. and key territories around the world.
- Additional Rainbow Rangers branded products at retail include two DVDs from Distribution Solutions available at Walmart and Target stores nationwide, as well as online at Amazon; costumes and accessories at online retailers, including Walmart, Amazon, Party City, and halloweencostumes.com; apparel from Bentex on Amazon; storybooks from Macmillan Publishing at Target.com, Walmart.com, and Barnes & Noble; bicycles from Dynacraft at Walmart.com and Kohl’s.com; and stationery items from Inkology on Amazon.
- The Kartoon Channel! app on iOS has a 5-star ranking from almost 6000 reviews.
- Genius Brands has added Margaret Loesch as Executive Chairman of Kartoon Channel! (former President of Marvel Entertainment, FOX Kids, and Henson Television), and David Neuman as Chief Content Officer of Kartoon Channel! (former President of Walt Disney Television). Margaret was founding CEO of FOX Kids and built it from zero to the most successful and profitable kids program service, and what was eventually sold to the Walt Disney Company for $5.5 billion dollars.
- We are seeing heavy call buying for October.
Questions GNUS Bulls Need To Ask Themselves
Here are a few questions we want investors to ask themselves when it comes to GNUS Stock.
Why did hedge funds buy over 22 million shares when the price dropped from $11 to under $2?
Why is someone loading up on October call options?
Why did Arnold Schwarzenegger elect to receive warrants to purchase shares of the Company’s common stock as an advance against his profit participation in the new animated children’s series, Stan Lee’s Superhero Kindergarten?
Why is the company putting in place an incentive plan for senior management and employees?
Why is CEO Andy Heyward one of the company’s largest shareholders? Why did he buy 11.6 million shares last quarter?
They are all betting on a higher share price!
Stan Lee Controversy
What many don’t realize is that there is a lot of animosities between Disney and Stan Lee’s family. His daughter said:
“When my father died, no one from Marvel or Disney reached out to me,” she said. “From day one, they have commoditized my father’s work and never shown him or his legacy any respect or decency.” She went on to say, “In the end, no one could have treated my father worse than Marvel and Disney’s executives.”
This is why the focus for Stan Lee’s family is away from Disney and this benefited GNUS with this summer’s deal with Stan Lee’s POW! Entertainment. Stan Lee Universe will be drawn from Lee’s intellectual property created “post-Marvel Entertainment”.
Jointly owned, the deal will leave Genius Brands as the managing and controlling partner of the Stan Lee Universe joint venture. Stan Lee Universe will be built from the repository of all of the characters and IP created by Stan Lee, post-Marvel Entertainment, not otherwise elsewhere. It is drawn from over 100 original Stan Lee creations, from which it will develop and license approximately seven properties per year.
What surprised us was that GNUS sold off on this news. Stan Lee Universe is going to be an unimaginable source of blockbuster entertainment for many years to come. The spinoff opportunities for Kartoon Channel! alone are mindboggling, including a dedicated Stan Lee Universe program block.
What’s The Endgame For GNUS?
We know many are debating revenues and the company’s current numbers. However, we think that’s the wrong way to look at GNUS. In our opinion, GNUS is a takeover play, pure and simple. It’s a stock you buy and forget about. One day, you will wake up and see that it’s been bought out.
CEO Andy Heyward is focused on building his entertainment powerhouse. After selling his last company to Disney, when will he sell Genius Brands? Which company is the most likely buyer? Netflix or Disney or Amazon or Alibaba?
Consider the shows in development and the depth of characters in the GNUS portfolio. Disney bought Marvel for $4.2 billion. CEO Andy Heyward is following the Marvel playbook.
Right now we know many GNUS stockholders are frustrated and some are even getting discouraged. But it’s important to block out the news and ignore the bears. Instead, focus on what the smart money is doing like Anson Funds, Heights Capital, Arnold Schwarzenegger, and Andy Heyward. They are all looking for a big payday. Going by the increase in October call buying, it might come sooner rather than later in GNUS. So, to answer the question – Is GNUS Still A Good Buy? The answer is yes.
As always, good luck to all (except the shorts)!
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Disclosure: We have no position in NASDAQ:GNUS or any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.